On October 19, 2017, the Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans

and other retirement-related items for the tax year of 2018.

Highlights of Changes for 2018

The contribution limit for employees who participate in 401k, 403b, most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2018.

It’s That Time Again: Year end Tax Moves

While 2013 will be full of surprises as new tax laws are felt for the first time, there are still opportunities to reduce your tax obligation now and into next year. Here are some ideas worth looking at.

1. Make effective use of capital gains and losses.Remember short-term capital gains (assets held less than one year) have a maximum tax rate of 39.6% while the maximum long-term capital gain tax rate moves to 20%. Plus there is a potential bonus Medicare tax of 3.8% if your income exceeds $200,000 single and $250,000 married.

Action to take:

Net capital losses against short-term capital gains if possible. Also remember you can net up to $3,000 in excess capital losses against ordinary income.Consider maximizing your child’s unearned income potential prior to the impact of the “kiddie tax” (usually up to $2,000 of unearned income can be taxed at your child’s rate).

Review your portfolio and consider the appropriateness of taking long-term gains now versus holding the investment.

2. Last minute charitable donations.Now is the time to finalize your charitable donations. Remember you must always have a receipt (cash donations are no longer deductible without one) and only donate non-cash items in good or better condition. Donations of $250 or more also require an acknowledgement from the charitable organization.

Action to take:

Make any last minute donations and collect all applicable receipts.

Consider donating appreciated stock to gain additional tax benefits. If you are considering this alternative, it is always best to seek qualified advice prior to making this donation.

3. Fund your retirement accounts.Remember you can still make donations to qualified retirement accounts. Some accounts, like Traditional IRAs and Roth IRAs allow making contributions through April 15th as long as you qualify.

Action to take:

If possible, fund your accounts up to the maximum allowable. Don’t forget to take advantage of the catch-up provisions if you are age 50 or over.

Consider making contributions this year versus next to minimize your taxable income.

4. Run through other year-end checklist items.

Action to take:

Take Required Minimum Distribution from retirement accounts if you are over the age of 70 1/2.

Rebalance your investment portfolios as necessary

Review any medical and dependent care spending accounts to ensure you do not lose any unspent funds

Make contributions to your retirement savings accounts, especially if you are self-employed

Millions of Americans take advantage of their employer’s cafeteria plan that allows setting aside pre-tax dollars to be used to pay for qualified health care expenses. The problem with these plans has always been that if you do not use the funds in the account by the end of the year they are forfeited. Some employers have established an allowable “grace period rule” that gives an additional two months and 15 days to use the funds before they are forfeited.

New rules

The maximum annual amount that can be set-aside in Health FSA’s is now set at $2,500 (indexed to inflation after 2012). Old rules allowed this account level to be set by employers offering the benefit (usually $5,000). By reducing funds available for this benefit, the government is hoping it will help pay for the new health care law. With this law change, the IRS agreed to reconsider the long-standing “use it or lose it” rules within FSA’s.

Effective in 2013, employers can opt to change their Health FSA plans to allow up to $500 in unused funds to be carried over into the following year. If an employer opts to do this, they need to forgo any allowable grace period rules currently within their FSA plan.

What you need to know

Don’t assume you can carry over $500. With all the press around this rule change, many run the risk of assuming you don’t have to spend all your Health FSA funds by the end of the year. Remember, your employer must first make the rule change in their FSA plan before you can carry over unspent funds.

Look for a notice. Ask your employer’s human resource department what the company’s plan is with the new rule. You will need to plan for next year’s withholding based on their answer.

Contributions and spending must match. Just because you carry over $500 into next year, do not assume you can ask for expense reimbursements over the $2,500 limit during any one year. You cannot. So if you carry over funds, you may need to reduce your contribution into your FSA the next year.

A Health Savings Account (HSA) is usually a better option. Don’t confuse the Health FSA with the HSA benefit. If you are in a qualified high deductible health insurance plan, you may also be an active participant in an HSA. This pre-tax savings account can be used to pay for qualified medical expenses AND unused funds can be carried over into future years. As long as the funds are used for qualified expenses, there is no tax obligation. This type of savings account is usually preferential over the Health Care FSA option.

Sound confusing? It can be. Until you receive definitive word your employer is changing their plan, it is best to use up your FSA funds prior to the end of your plan year.

Tax Benefits – Use Them or Lose Them

These tax benefits are gone after 2013

With the massive tax changes made at the beginning of 2013, it is hard to believe that many tax laws are still set to expire at the end of the year unless Congress acts. As the year winds down, now is a good time to review some of the key expiring tax provisions and take action if you wish to benefit from them.

Direct charitable contributions from your retirement account. If you are age 70 1/2 or older you can make a direct contribution from your tax-deferred retirement account directly to a qualified charitable organization.

Benefit: If handled correctly, this pre-tax donation does not have to be reported as income on your tax return.

Federal tax credit for energy-saving home improvements. This credit for qualified energy-saving home improvements expires in 2013.

Benefit: $500 credit (this is a lifetime credit, not annual) for energy saving purchases. The limit is $200 for windows and skylights.

Optional itemized deduction of sales tax in lieu of state income taxes. In low or no income tax states, you may use a sales tax itemized deduction instead of a state income tax deduction.

Benefit: If you made major purchases or live in a state with no/low income taxes your itemized deductions could be much higher.

Itemized deduction of qualified mortgage insurance premiums. Through 2013 you can continue to deduct your qualified mortgage insurance premiums as an itemized deduction.

Benefit: A meaningful increase in your itemized deductions.

Qualified higher-education tuition and expense deduction. You can offset the tuition and expense of qualified education using the tuition and fees deduction through 2013.

Benefit: Up to a $4,000 income deduction. Planning is required as this deduction may not be used in conjunction with many other educational tax benefits.

Numerous small business tax incentives. Many small business tax credits and accelerated depreciation incentives are also scheduled to expire after 2013. These range from bonus depreciation to the expiration of the research and development credit. If your business anticipates using any credits this year, it is best to review your situation.

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While official numbers for 2014 are not yet released by the Internal Revenue Service (IRS), many figures are based on formulas set within the Internal Revenue Code (IRC) and use the Consumer Price Index (CPI) published by the Department of Labor. They are noted here for your planning purposes:

Tax Brackets: While the actual income brackets for tax rates are not set for 2014, the rate of inflation that impacts the income levels for each tax rate is anticipated to raise the income brackets by approximately 1.7-1.8%. Please recall that beginning in 2013 there is a new 39.6% income tax rate in addition to a new Medicare surtax.